Dorgan

The game for the Swiss National Bank seems to have changed completely. Again the central bank had increase money supply, as measured by deposits at the SNB by local banks and by the Swiss confederation, this time even by 13219 mil. francs (source). This money printing implies that the SNB had to buy in Euros in similar quantities in order maintain the floor. We have speculated that the SNB will double or triple the Forex reserves before it gives in and the floor will break.  At the current speed of 13 bln per week, this will result in 676 bln. CHF per year, i.e. they will have tripled money supply and currency reserves in one year. This sum exceeds slightly the Swiss GDP, implying that a break of the floor from 1.20 to 1.10 (about 10%) on the basis of 50% Euros in the SNB reserves would result in a loss of around 5% of GDP at the central bank. Moreover, in the week ending in May 25th, nothing really extraordinary happened, what would happen in case of a Greek euro exit?

Anybody watching the EUR/CHF exchange rate this year was wondering why the volatility the pair saw last year had completely left. The pair slowly fell from 1.2156 over 1.2040 at the end of Q1 to 1.2014 today. FX traders hoped on a hike of the floor from 1.20 to 1.25, as many Swiss politicians and companies requested. Banks sold masses of Long EUR/CHF certificates and options. The retail market measured in SSI (Speculative Sentiment Index) was 96% long EUR/CHF.  We saw the typical Forex web sites telling regularly their masses of followers that the protagonists of these web sites were going long EUR/CHF in the hope that the SNB is going to act. This happened at multiple critical levels, at 1.2070, 1.2050, at 1.2030 and finally at 1.2010. The small FX trader was begging for months that the SNB would finally intervene. When all these people were long EUR/CHF, who was actually short, when the exchange rate continued to fall ? We speculated that some big accounts wanted their clients to be knocked out with their EUR/CHF longs, we thought that Swiss pension funds and big investors continued to repatriate their foreign funds.  What did the SNB ? Did they support the hopes of the masses, of all these SNB rooters ? But on the back-door of all this rhetoric they did the complete opposite: The central bank was happy to get rid of their Euros at a higher price than the floor they had set in September 2011 !

Senator Dorgan calls it like he sees it ...